Draft COVID-19 Pandemic in Bangladesh The Power Sector in the National Budget for FY2020-21: An Analysis of Allocative Priorities & Alternate Proposals Presentation by Dr Khondaker Golam Moazzem Centre for Policy Dialogue (CPD) 24 June, 2020
Study Team Dr Khondaker Golam Moazzem A S M Shamim Alam Shibly * Special thanks to Ms Taslima Taznur, Research Intern, for her able research support. 2
Discussion Points 1. Introduction 2. State of the Power Sector in FY2020: A Brief Overview 3. Challenges confronted by the Power Sector: Case of COVID-19 4. The Power Sector in the National Budget for FY2021 5. Analysis of Power Division’s Annual Development Plan for FY2021 6. Alternate Budgetary Proposals and Beyond 7. Conclusion 3
1. Introduction 4
1. Introduction Bangladesh economy has been confronting major challenges in view of COVID-19 pandemic The government has responded to the crisis since early stage by announcing and implementing various policy measures Despite various initiatives, the FY2020 has been ended with a lot of despair in terms of economic growth, food security, unemployment and underemployment which caused rise in poverty and inequality The projected economic growth for FY2020 varied widely between official estimate (5.2%) and that of independent organisations (CPD: 2.5%; WB: 1.6%; IMF: 2.0%; ADB: 4.5%) Forecast on economic growth for FY2021 is rather mixed: (MoF: 8.2%; ADB: 7.5%; WB:1.2-2.9%; IMF: 9.5%) CPD (2020) estimated a rise in poverty level to as high as 35%; BRAC (2020) estimated an income erosion of 95% households. Unofficial estimates indicate more than 1 crore people is in the risk of out of job Disruptions in supply chains connected to domestic and international markets are far behind normal affecting production, export, investment, and employment With the prolong period of COVID pandemic, the economy is likely to face challenges in managing short term risks which would led to make medium-term recovery The power sector of Bangladesh has been facing the consequent impact of COVID-19 in different ways Lower demand for electricity during COVID period and the post-COVID period, growing financial burden and changing forecasted demand for electricity 5
1. Introduction In this backdrop, the national budget for FY2021 has been announced in the National Parliament on 11 June, 2020 and now is being discussed in the Parliament Total budget for FY21 will be Tk.568,000 crore which is 7.0% higher than that of FY2020 (Tk.523,000 crore) As per the budget document, four areas will get the priority in the next year: health, education, agriculture, and employment generation Government is projecting a quick economic recovery during FY2021 (MTPS FY21-23) Projected GDP growth will be 8.2% (jump from 5.2% in FY20) and projected private investment will be 25.4% (jump from 12.7% FY20) CPD (2020) explained that macroeconomic framework and fiscal framework of the budget for FY2021 are at their weakest links Given the prevailing health crisis, both private investment and GDP would not rise as projected Implementation of the budget will be highly difficult because of ambitious target-setting for revenue mobilization, limited attention in expenditure control, difficulty in deficit financing and lack of reprioritization of budget allocation The power sector has an important role to play in implementing the National Budget for FY2021 Scopes for creating fiscal space through rationally adjust revenue and development expenditures of the Power Division Reprioritising ADP allocations of the Power Division in view of possible future adjustment of the power sector Utilising the fiscal space for implementing alternate priorities This budget-analysis will help to identify the power sector’s allocative priorities, areas for improvement in resource utilisation and possible scopes for future adjustment 6
2. State of the Power Sector in FY2020: A Brief Overview 7
2. State of the Power Sector in FY2020: A Brief Overview The power sector is one of the major areas of success of the government over the last decade. Between FY09 and FY20 (mid-June)- Installed power generation capacity has increased : from 5,823MW to 20,514 MW (252.3%) Maximum generation of electricity has increased : from 4,606 MW to 11,119 MW (141.4%) Per capita consumption of electricity has increased : from 165.3kWh to 374.6kWh in FY2019 (126.6%) The number of consumers of major economic activities has gradually increased : 8.7% in FY19 (y-o-y basis) Per Capita Generation & Consumption (kWh) Generation of Electricity: Installed Capacity, Derated Capacity and Maximum Demand 25,000 425.92 450 20,514 400 374.62 20,000 350 300 183.26 15,000 250 165.32 11119 200 150 10,000 7,264 6,765 100 4,890 50 5,000 0 0 Installed capacity Maximum Demand Maximum (MW) (MW) Generation Per Capita Generation (kWh) Per Capita Consumption (kWh) 2010-11 2015-16 2018-19 2019-20 (17 June, 2020) 8
2. State of the Power Sector in FY2020: A Brief Overview Despite the progress, demand for electricity did not rise as per projection of the PSMP2016 The lower growth in electricity demand is observed in agriculture (FY21: 2.6%) and small-scale industries (2.9%) Moderate level of growth is observed in domestic (9%) and large-scale industry & commercial activities (9.5%) Sluggish growth in production and investment in manufacturing, services, and commercial activities is the main reason behind this COVID-19 has further aggravated the situation Distribution of Consumers of Electricity, FY2018-19 (% of total consumers) 50 42.19 39.44 40 30 20 13.22 10 2.84 1.59 0 Domestic Industrial Commercial Agriculture Others 9
2. State of the Power Sector in FY2020: A Brief Overview The private sector is increasingly becoming the major source for power generation – public sector (9567 MW, 48.5%); IPP (6919 MW; 35%); QRPP (1958MW; 9.9%) and imported (160 MW; 5.9%) Power generation is overwhelmingly dependent on fossil-fuel: gas (10,624MW; 53.5%), F. oil (5,152 MW; 25.9%) and HSD (1,875 MW; 9.4%). Coal is used to generate 524 MW worth of electricity Renewable energy is a marginal source (1.5%; 300 MW) - solar (70MW) and hydro (230 MW) Little effort has been made towards developing clean energy based power sector Installed Capacity: Ownership and Energy-mix Raw Installed capacity Installed capacity Ownership Materials/ (no. of plants) (no. of plants) Fuel Coal 524 mw (4) Public PP 9567 mw (76) Gas 10624 mw (71) IPP 6919 mw (49) HFO 5152 mw (56) Rental PP HSD 1875 mw (10) 1958 mw (20) Hydro 230 mw (1) Imported 1160 mw (2) Solar 70 mw (4) Total 19595 mw (147) Total 19595 mw (146) 10
2. State of the Power Sector in FY2020: A Brief Overview Higher demand for electricity in Zone-wise Power Generation 10,000 the east zone (i.e. concentration of 8,000 economic activities) pushed for 9,012 6,000 generating more electricity 3,589 4,000 compared to that of the west zone 3,881 2,000 (69% and 31% of total 573 0 respectively) Majority of power plants are located in Dhaka (39), Comilla Maximum Generation in MW East Zone (23), Chittagong (20), Rajshahi Maximum Generation in MW West Zone (20) and Sylhet (16) Energy-mix of power plants is No of Plants in Different Zone with Energy-mixes largely of two types Zone Coal Gas HFO HSD Hydro Solar Total Public PPs are largely gas- Barisal 1 3 1 0 0 0 5 based Chit.gong 0 5 12 0 1 2 20 Comilla 0 15 7 1 0 0 23 Private PPs (IPPs) are mostly Dhaka 0 20 16 3 0 0 39 F. oil/HSD based while QRPP Khulna 0 1 6 3 0 0 10 are mostly gas/F. oil based M.sigh 0 2 3 0 0 1 6 The transmission and distribution Rajshahi 0 9 10 1 0 0 20 Rangpur 3 0 1 2 0 1 7 systems did not make considerable Sylhet 0 16 0 0 0 0 16 progress in commensurate with Total 4 71 56 10 1 4 146 that of power generation 11
3. Challenges Confronted by the Power Sector: Case of COVID-19 12
3. Challenges Confronted by the Power Sector: Case of COVID-19 The progress in the power sector is not out of weaknesses/challenges which need to be examined particularly in view of COVID 19 pandemic in the country Overcapacity in Power Generation: Overcapacity is a growing concern for the power sector which has further aggravated during the COVID-19 period The amount of overcapacity on 16 th June of FY18, FY19 and FY20 was 9,437 MW, 8,806 MW, and 10,216 MW respectively During the same period, the rates of overcapacity were found to be as 59%, 46%, and 49.8% respectively The over-capacity was reported at the highest level in January and March of 2020 (during the COVID-19 period) at 63.3% and 62.5% respectively Such a high amount of ‘reserve’ capacity is against the target set at the PSMP (25%). This is significantly higher than the reserve capacity usually maintained by developing countries (10%) (IEEFA, 2020) The Power Division (BPDB) has confronted rising fiscal and financial burden due to overcapacity related problems which has aggravated further during the COVID-19 period and would deepen in the post-COVID period 13
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